Sri Lanka joins China's OBOR project with deal on Hambantota...| MENAFN.COM

Monday, 05 December 2022 10:59 GMT

Sri Lanka joins China's OBOR project with deal on Hambantota port

(MENAFN- NewsIn.Asia) Colombo, July 30: With the signing of the amended agreement by the Sri Lanka Ports Authority (SLPA) and the China Merchant Port Holdings Company (CMPort) here on Saturday, Sri Lanka has well and truly joined China's One Road One Belt (OBOR) multi-continental communications project, writes P.K.Balachandran in

With Pakistan, Bangladesh, Nepal and Myamnar also signing up for OBOR, India appears to be isolated and out in the cold in its own backyard.

Speaking at the signing ceremony, the Executive Vice President of the China Merchant Group (CMG), to which CMPort belongs, Dr. Hu Jianhua said: 'The agreement will make sure that Hambantota port will achieve its due status as a gateway to the expanding economies of South Asia and the African region where we have similar layouts. With these maritime infra-structure investments, and other diverse investments, such as the proposed international maritime centre, Sri Lanka will be well positioned to play a strategic role in the One–Belt-One-Road initiative of the Government of the People's Republic of China.'

Hu noted that the Hambantota project is the largest maritime communication project in Sri Lanka, to date. The bold decision to build the port was taken in 2009 when the world was going through an economic crisis. When fully functional, the port will contribute significantly to the economic development of Sri Lanka, he added.

Hu further said that China would bring to the port its established expertise in running ports successfully, just as it did in the case of the Colombo Port's International Container Terminals. Because of the Chinese built and run Container Terminals, the Colombo Port is one of the 20 top ports in the world, he pointed out.

In answer to the criticism that Chinese companies are only interested in their work and making money the world over, oblivious to the needs of locals, Hu said that as part of its Corporate Social Responsibility, CMPort will have agricultural and health projects in the neighborhood of the port.

In his address, the Sri Lankan Minister of Ports, Mahinda Samarasinghe, said that the agreement on Hambantota will be the harbinger for more Chinese investments in Sri Lanka to enhance the island's industrial potential. Sri Lanka, he said, is to set up several industrial zones which need Chinese investments.

Samarasinghe profusely thanked the Chinese Ambassador in Sri Lanka, Yi Xiliang, for working 'tirelessly' to bring the agreement about in the face of opposition from Sri Lankan nationalists who decried an earlier agreement on the project (in December 2016) as a 'sell out' and still continue to subject the government to barbs about ignoring the national interest.

Minister Samarasinghe took pains to explain the improvements made in the amended agreement in relation to the earlier agreements. The amended agreement secures for the Hambantota port, US$ 1.12 billion, in upfront payment from the Chinese partner CMPort, which will enable the SLPA and Sri Lanka to meet their debt repayment obligations.

It also gives the SLPA a 30% stake in the port, in contrast to 20% which was earmarked for it earlier under the December 2016 'Framework Agreement.' CMPort will now get 70% stake and not 80% as granted earlier.

Furthermore, the SLPA would get royalty and dividends. The security of the port would be entirely under the control of the SLPA. Warships could call at the port but only with the express permission of the SLPA and its security committee which will include the Defense Ministry and the Sri Lanka Navy.

Samarasinghe said that as per President Maithripala Sirisena's suggestion, the amended agreement was placed on the table of parliament for discussion on Friday, but it could not be debated because of a ruckus created by the Opposition.

However, the agreement, as signed on Saturday would be presented to parliament again, because some might charge that it is different from the one presented on Friday, the Minister said.

He also pointed out that the agreement is not cast in stone for all time, and that it can be amended 'at any time with the consent of both the parties.'

Finance Minister Mangala Samaraweera said that with the development of the Hambantota port, other districts of southern Sri Lanka will also grow and that economic growth will not be restricted to Colombo district, as has been the case so far.


However, a discordant note was struck by the Marxist/ultra nationalist Janatha Vimukthi Peramuna (JVP), whose leader, Anura Kumara Dissanayake, said that the JVP will ask workers in the SLPA to reject the agreement. He said that bunkering should have been kept exclusively with the SLPA as it is a money spinner.

Significantly former Ports Minister Arjuna Ranatunga who has been opposed to the deal, wanting a 60% stake for the SLPA and not 70%, did not attend the signing ceremony.


Located near the main shipping route between Asia and Europe, the Hambantota port has been mired in controversy since CMPort built it for US$1.4 billion. The port did not get custom and was running up a huge loss. Other than car carriers which were forced to call at Hambantota, only 19 ships called in 2015; 14 in 2016 and 10 so far in 2017.

According to SLPA Chairman, Parakrama Dissanayake, the port had run up a humongous cumulative loss of LKR 46,711 million and the annual loan repayment was a hefty LKR 9100 million.

A further investment of US$ 600 million was needed to make the port truly operational and able to receive large ships. But Sri Lanka had no money. This need and the inability to pay off the loan made the government led by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe to request China to convert the debt into equity.

But there was opposition to this 'debt-equity' swap idea both in Sri Lanka and in China. In Sri Lanka it meant majority ownership of a great and sensitive national asset by a foreign state owned company. And in China, it was against the law to convert debt into equity.

However, repeated pleading by Sri Lankan leaders made their Chinese counterparts relent. By 2016 end, China had agreed to take 80% stake and pay US$ 1 billion for it. But they also wanted and got the port on a lease for 99 years and 15,000 acres of land to develop the hinterland.

But when this 'Framework Agreement' was made public, there was a hue and cry from the opposition and the media. Farmers, port employees, politically inspired thugs and even Buddhist monks, rioted in Hambantota. Port workers held up a Japanese vessel for days. The then Ports Minister Arjuna Ranatunga demanded full control over the port and said that the Chinese company should not be given more than 60% of the shares.

Anti-China and security conscious India also put in its two penny bit, and demanded that port security be entirely in the hands of the Sri Lanka navy/SLPA and the Chinese should not be allowed to use the port for military purposes except with Sri Lanka's permission.

These factors forced the government to approach the Chinese for an amendment. After hard and long negotiations, as Dr. Hu put it, the two parties finally agreed to a 70-30 share division. China also assured that the port would not be used for military purposes.

The revised deal provides for the formation of two companies to split the operations of the port. Sri Lanka will have a majority stake (50.7%) in the Hambantota International Port Services Company (HIPS), which will be in charge of security. And China will run the other company, the Hambantota International Port Group (HIPG), which will be in charge of business. In the latter company CMPort will have 85% stake.

The lease of the port will continue to be for 99 years, but Sri Lanka will have options to buy back shares at predetermined times. One of the options is that the SLPA can purchase all shares at the end of 70 years. All transactions in the port are to take place as per Sri Lankan laws.

(The featured picture at the top shows the Sri Lanka Ports Authority Chairman Parakrama Dissanayake exchanging agreement document with the Vice Chairman of CMPort Dr.Bai Jingtao)


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